A Bona Fide 1031 Attempt Can Push Tax into Next Year — Even If It Fails

Quick Take: If a real exchange starts in December and your QI holds proceeds past year‑end, gain is typically recognized next year.

How It Works

Start a legitimate §1031 with a Qualified Intermediary, follow the 45‑day ID rule, and keep proceeds out of your control through December 31. If the exchange fails, recognition generally occurs when the QI releases funds—often the next year.

Example Timeline

Why It Matters

• Defers large gains into the next tax year
• Improves cash‑flow and estimated tax planning
• Keeps option open to complete a late find

What Counts as “Bona Fide”

• Written exchange agreement with a QI prior to closing
• Proceeds held by QI through year‑end
• Good‑faith intent to exchange (document search efforts)

⚠️ Cautions: This doesn’t eliminate tax; if your QI releases funds before Dec 31, gain is current‑year. Confirm state conformity (CA generally follows).

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